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Vesting After Plan Merger


Catch22PGM
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Company A acquired Company B and each have 401(k) plans.  Plans will be merging 12/31/2020.  Company A 401(k) Plan (surviving plan) has immediate vesting for all sources.  Company B 401(k) Plan (merging plan) has a 6-year graded vesting schedule for match and profit sharing.

1. Can the surviving plan continue the 6-year graded vesting schedule for all of the merging match and profit sharing money (active and terminated participants)?  I think this is yes but value opinions.

2. Can the surviving plan continue the 6-year graded vesting schedule for the merging terminated participant accounts while providing 100% immediate vesting for merging active participant accounts? I'm not sure on this one.

3. Can the surviving plan provide immediate 100% vesting for all of the merging match and profit sharing money (active and terminated participants)? I'm not sure why they would, but need to cover all options.

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#1 and #3, definitely yes. #2 probably also yes, but there might be a nondiscrimination issue if the group of actives is predominantly HCE. There are some rules about how nondiscrimination applies to former employees that I don't know off  the top of my head. Actually come to think of it there might be nondiscrimination issues with #1 depending on the number of HCEs and NHCEs who are eligible for each vesting schedule.

If they go with #1 or #2, this may sound silly but make sure they know what to do with forfeitures. Since the plan is currently 100% vesting they probably have never had to do a forfeiture allocation before.

If they go with #2, what happens if one of the former employees is re-hired?

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  • 1 month later...
On 11/17/2020 at 10:31 PM, C. B. Zeller said:

Actually come to think of it there might be nondiscrimination issues with #1 depending on the number of HCEs and NHCEs who are eligible for each vesting schedule.

Nothing directly on point in the 1.401(a)(4)-11 Regs, but I think there is enough language in 1.401(a)(4)-11(c) to argue that the vesting schedule for the pre-merger account balances does not need to be compared for BRF purposes to the vesting schedule for post merger matching and profit sharing contributions.  

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